In brief
- Ghana’s annual headline inflation surprised to the downside with a faster-than-expected decline of 190bps to 20.9% in July 2024 (vs our forecast decline of 80bps and consensus expectation of 130bps drop). This represents the fourth consecutive month of decline in annual inflation and marks the longest streak of disinflation since 2H2023. The sequential rate was more benign, coming in at 2.1% m/m in July 2024 (vs 2.9% in June 2024) as food inflation tumbled to 1.7% m/m (-340bps) to offset the 150bps upturn in non-food inflation to 2.4% m/m.
- Our analysis of the annual CPI data revealed the impact of favourable base effect across both food and non-food items, but with food inflation enjoying the more significant benefit of the base drift effect. Food inflation tumbled by 250bps to 21.5% y/y while non-food inflation decelerated by 110bps to 20.5% y/y in July 2024. Over the next 2 – 3 months, we expect the moderation in food inflation to continue on the back of stronger crop harvest, re-opening of artisanal and industrial fishing as well as continued stability of the Ghanaian Cedi.
- Although the sharper-than-expected decline in the July 2024 annual inflation significantly eases our concerns, we remain convinced that unfavourable base effect will nudge up the August 2024 inflation print, albeit with crop and fish harvest capping the upside. We thus forecast annual inflation rate to edge up by 90bps to 21.8% while the m/m rate prints lower at 0.5% in August 2024.
- We estimate that the latest sharp disinflation has widened real interest rates with the ex-post real policy rate at 8.1% in July and the ex-ante real policy rate likely at 7.2% in August 2024. This could strengthen a dovish case at the next MPC meeting in September 2024. However, the dovish sentiments could be clouded by the uncertain inflation outlook relative to the seemingly ambitious year-end target under the IMF programme and the Treasury’s elevated borrowing needs.
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